Doves Calling 50bp Bluff (3/3)

While the June FOMC communications convinced some analysts to amend their forecasts to now include a further hike (including Nomura, Swedbank), many others weren't convinced enough to change their pre-existing call that the Fed's last raise will turn out to have been in May. The following analysts forecast no further hikes:

• Danske writes that "between the lines, Powell did hint that the Fed is seeing underlying inflation cooling. In Powell’s words, ‘the things we need for disinflation are coming into play’. While the strong macro data calls for hawkish communication, we doubt the rate hikes will end up materializing, But it will be up to the markets to call Powell’s bluff, and as only 19bp is currently priced in by September, it does not seem like the message was all that convincing after all."
• ING opines that the Fed "acting dovishly (unanimous pause) but talking hawkishly (penciling in 2 hikes) gives them maximum flexibility to respond to the incoming data. It keeps monetary conditions tight, but they can turn dovish and jawbone things looser should the data turns out as we expect."
• Morgan Stanley continues to think the Fed is done hiking, and eyes inflation data: "we find the upward revision to core PCE perplexing as incoming data has been in line with the Fed's forecasts, and especially as trend growth rates in key measures of core services inflation have consecutively softened. In relation to our forecasts we think this sets up core inflation to fall faster than the Fed currently projects, which should offset the takeaways from a higher peak rate in the dot plot. By the time of the September meeting the core inflation projection for this year, as well as the level of the funds rate could get revised downward.
• In continuing to see no further hikes, NatWest says "it is possible that the larger-than-expected move in the dots and the change to the statement reflected a compromise among officials to go along with the decision to pause at the meeting."
• TD went from expecting a 25bp hike in June, to now expecting no further hikes: "If the Fed really saw the need to send a strong hawkish signal to the market, the best way to communicate that message would have been through an actual rate hike today. Despite the Fed's visible efforts to signal that additional rate increases are possibly in the horizon, we are of the view that the Fed likely ended its tightening cycle back in May. Indeed, while we can't fully discard an additional rate increase before the end of the year, we expect the Fed not to lift rates during the remainder of it."